I. Field of the Invention
The present invention generally relates to financial systems and to systems and methods for processing financial information. More particularly, the invention relates to systems and methods for processing financial information, such that the processing provides an indication that a mortgage loan is likely to involve property value fraud.
II. Background and Material Information
In the real estate industry, there is a fraudulent practice known as “mortgage flipping.” Mortgage flipping refers to an illegal scheme in which real estate speculators defraud a mortgage lender by inducing them to loan more money on a property than the property is actually worth. The scheme works as follows: First, a home is bought at its normal fair market price. Then, the new owner-seller offers the home for sale at a significantly higher price, usually supported by an inflated, fraudulent, appraisal. A purchaser then agrees to purchase the home at the inflated purchase price. The purchaser is typically a cohort of the new owner-seller. Moreover, the purchaser is typically someone that cannot qualify for a mortgage, e.g., a homeless person. As such, the new owner-seller and/or the purchaser may submit fraudulent documents to induce the lender into approving the loan. For example, the purchaser may submit false lease agreements, employment information, and/or a fraudulent appraisal. The lender is thus induced into making a loan that would not have been approved but for its reliance on the fraudulent documents. The fraudulent scheme continues when the new owner-seller then sells the house to the cohort purchaser at the inflated price. The new owner-seller makes a very large profit, i.e., the difference between the normal fair market value and the inflated, fraudulently based sales price. Following the plan, the cohort purchaser of the home then defaults on the mortgage loan causing the lender to initiate foreclosure proceedings against the home that secures the loan. Under the best of circumstances, the mortgage lender may succeed in selling the home for its fair market value, but in any event is unlikely to recover the inflated sales price. Consequently, the lender experiences a loss. Moreover, since the property sale was a sham and not an earnest sale to someone intending to own and occupy the home, the foreclosure property might be neglected and become a blight in the neighborhood until a legitimate buyer purchases the property. Further, such frauds are difficult to detect because the home usually has a lower market value than the comparable homes in the area (e.g., the lower market value home may have been an abandoned home or one that was in gross disrepair, and therefore the values of other homes in the neighborhood would not be comparable to the lower market value home, as they would be for a more typical property in the neighborhood). As such, systems and methods to detect such fraudulent schemes are needed.